The Fifteen Biggest Lies about the Economy: And Everything Else the Right Doesn't Want You to Know about Taxes, Jobs, and Corporate America

INTRODUCTION

How our conventional wisdom fails us

Hope and change were in the air on that cold January day when Barack Obama was sworn in as the nation’s first African American president. But there was also a darker shadow looming. Our economy lay in ruins, and the American people were mad as hell.

They had every reason to be. Unemployment was approaching 8 percent and rising. They’d seen their retirement funds dry up and their home values tank. They’d funded an enormous bailout of the banking industry, only to see Wall Street’s movers and shakers earn fat bonuses just as they had in better times. The wisdom of the pundits, the experts, and the prognosticators—the high priests of the global economy—turned out to be woefully wrong. The nation’s elites had been exposed as disastrously incompetent managers, yet their own positions of comfortable privilege had, by and large, remained secure.

Everyone agreed that things were bad, but who was to blame? What exactly had happened to our sense of economic security?

Since that day, many Americans, from across the political spectrum, have gone from hopping mad to spitting mad. Progressives not only became disenchanted with the GOP’s obstructionism, but also blamed the administration for dropping the ball. Many felt that the hopey-changey promises that candidate Obama had made on the stump had been abandoned. Some said that the administration hadn’t really fought the good fight it had promised or hadn’t fought it well.

But the really juicy anger was on the Right—the kind of dramatic, often over-the-top anger the media love, complete with misspelled signs suggesting that the new president was a socialist who hadn’t been born in this country. The Tea Parties had arrived, and they captured the imagination of the chattering class during 2009 and 2010. The pundits debated whether they represented a spontaneous uprising of ordinary, apolitical people awoken from their slumber by the coming of the econopocalypse and the bailouts given to Wall Street and Detroit. Were they salt-of-the-earth moderates inflamed by fear of runaway government spending, or were they a bunch of wing-nuts who had no coherent ideological beliefs but were simply responding to some good old-fashioned racist dog whistles?

What was striking about these debates is that they often began with the premise that whatever else the Tea Partiers might be, their economic concerns were valid. Yet it was apparent that although their economic pain and anxiety were all too real, their analysis of what caused it was nothing short of insane. It was a movement whose members lived in a parallel universe, embracing wild conspiracy theories about how ACORN and MoveOn.org had brought down the global economy to advance their radical agendas. They saw creeping socialism in the most benign government programs. It was a movement whose views reflected the simmering paranoia of its intellectual muse, Fox News host Glenn Beck.

More important, it was a movement that had only a tenuous grasp on the role that government plays in our society. In 2009, an enraged constituent at a town hall meeting in South Carolina yelled at Republican representative Bob Inglis to keep your government hands off my Medicare! Another woman reportedly sent a letter to the White House stating in no uncertain terms, I don’t want government-run health care, I don’t want socialized medicine and don’t touch my Medicare.¹ According to Slate’s Timothy Noah, such calls were common during that long, hot summer.²

In 2010, National Public Radio did a fawning profile of Liberty Belle, aka Keli Carender, one of the founders of the Tea Party movement. When asked why her congressman’s support for healthcare reform had so enraged her, she summed up the Tea Party rhetoric pretty well. I tried to boil down in essence what makes me so angry about it, Carender told NPR. And it was this idea that he and other people decide what the needs are in society. They get to decide. But in order to fund those things, they have to take from some people in order to give to the other people. What NPR didn’t tell its audience is that Carender, an actress, had done six shows for a Seattle theater company that had received a Washington State arts grant, and had worked on a research project funded by the National Science Foundation before that.³

A few weeks later, the Washington Post interviewed Mike Vanderboegh, a 57-year-old former militiaman from Alabama, who took to his blog urging people who opposed the historic healthcare reform legislation—he called it ‘Nancy Pelosi’s Intolerable Act’—to throw bricks through the windows of Democratic offices nationwide. He told a Post reporter, The federal government now demands all Americans to pay and play in this system, and if we refuse, we will be fined, and if we refuse to pay the fine, they will come to arrest us, and if we resist arrest . . . then we will be killed. The Post also noted that Vanderboegh is disabled and receives a $1,300 check from the tyrannical U.S. government each month.⁴

These activists firmly believe that they’re speaking truth to power in a way that those dirty hippies in the 1960s never had. But the reality is that much of the organizing behind the Tea Party movement—the ideas, the seed money, the infrastructure that brings their events together—comes from two corporate-funded GOP front-groups. These were the people behind the people railing against the perfidy of the elites.

The first, FreedomWorks, founded by former Republican vice presidential nominee Jack Kemp and former House Republican leader Dick Armey, is generally credited with launching the movement. FreedomWorks is no newcomer to the art of astro-turfing; in 2005, Newsweek reported that the Bush White House coordinated a series of staged town hall events with the group to tout the president’s Social Security scheme. The ordinary Americans asking the questions at those town halls? They were conservative activists bused in by FreedomWorks to serve as living, breathing props.⁵

The second group, the Tea Party Express, was previously operated as a political action committee (PAC) run by veteran operatives tied to the Republican PR firm Russo Marsh and Rogers. According to Politico, the group used campaign-style advance work and event planning, slick ads cut by Russo Marsh, impressive crowds and a savvy media operation to make the PAC among the prolific fundraising vehicles under the tea party banner. That, in turn, has meant a brisk business for Russo March . . . and a sister firm called King Media Group. The two firms had received $1.9 million of the $4.1 million in payments made by the PAC through the spring of 2010.⁶

These anecdotes capture part of another story. It’s a story that’s important to understand as we grapple with some very new economic realities. It’s a story about how the conservative movement manipulated our economic discourse to obscure the ways in which they’ve rigged the free market so that they tend to come out on top. It explains why so few noticed as a new Gilded Age emerged under a haze of lies, half-truths, and distortions.

This book will dissect some of those lies, and we’ll start with a simple question: how could a sizable number of ordinary Americans, enraged at Wall Street more, perhaps, than at any other time in history, possibly be led to believe that new banking regulations are a threat to their own self-interest?

Using a Big Lie to Torpedo Financial Reform

In the spring of 2010, after a bitter yearlong debate over healthcare legislation, congressional Democrats set their sights on financial reform. Most analysts agreed that new rules of the road were needed for the Wall Street high-flyers who had almost brought the global economy to a screeching halt in 2008.

Chris Dodd, the Democrat from Connecticut who chaired the Senate Finance Committee, offered up a package of rather mild reforms that most progressive analysts immediately criticized for not going far enough to rein in the banks. The bill would have created a new financial consumer protection agency, allowed the feds to dissolve insolvent banks in an orderly way, and created a new body that would oversee risky behavior on Wall Street.

As you might imagine, it didn’t sit well with the financial industry. The American Bankers Association—the leading industry group—released a statement calling the proposals unwarranted, detrimental regulatory structures and adding, we are strongly opposed to the draft regulatory reform proposal that . . . Christopher Dodd has advanced.⁷

Dodd’s bill came amid almost unprecedented public hostility toward Wall Street, so opposing the measure as some radical socialist endeavor—the usual rhetorical strategy—was unlikely to get much traction. But an unknown advocacy group calling itself (ironically) the Committee for Truth in Politics took a different tack. The group, organized by a former North Carolina Republican Party operative, started running a series of ads suggesting that Dodd’s reforms were, paradoxically, a gift to the banking industry—a rich, undeserved bailout that only Wall Street executives could love.⁸ The reality, as FDIC chair Sheila Bair put it, was that the bill made bailouts impossible, as it should. She explained that lawmakers had worked really hard to squeeze bailout language out of this bill. . . . In a true liquidity crisis, the [government] can provide systemwide support in terms of . . . lending and debt guarantees—but even then, a default would trigger resolution or bankruptcy.⁹

In technical terms, this particular lie might be called a classic example of chutzpah. But it wasn’t being uttered only by shady right-wing front-groups. Minnesota representative Michele Bachmann, one of the most reactionary members of Congress and a darling of the Tea Partiers, had called an earlier version of the bill a permanent bailout for Wall Street. Soon after that, Senate Minority Leader Mitch McConnell (R-TN) made the rounds of the Sunday talk shows to spread the meme. All were playing off a script developed by Frank Luntz, the GOP’s super-pollster, who prepared a memo in early 2010 suggesting that opponents of the bill paint it as punishing tax-payers while rewarding the very big banks and credit card companies that were at that very moment furiously trying to kill the bill.¹⁰

It’s likely that nobody would even have thought of characterizing new regulations as a giveaway to the banks if not for the success the conservative movement (backed by corporate America’s deep pockets) has had in framing the economic issues of our day. When the ads went up, Mother Jones’s Kevin Drum commented,

And that, boys and girls, is how the game is played. Just portray a bill meant to rein in banks as a bill meant to bail out banks. . . . Maybe suggest that instead of protecting consumers, it will remove consumer protections. Or that instead of regulating derivatives, it will set them free. Simple. Why bother making up complicated lies when simple ones will do just fine?¹¹

Turning reality on its head is nothing new for Frank Luntz, a key figure in the conservative message machine. He’s probably best known for penning an influential 2002 memo to then president George W. Bush suggesting that conservatives undermine the scientific consensus on global warming. He also played a pivotal role in popularizing the term death tax, which is much easier than explaining why ordinary Americans should oppose a modest inheritance tax on a few thousand of the richest families in the country.

In other words, the mendacity of the Committee for Truth in Politics was standard fare. And when you pause for a moment to examine this kind of spin, a few themes emerge. Every progressive policy is decried as a job killer or an act of wild-eyed social engineering. Almost without exception, those policies are painted as radical. Conversely, every measure that affects the wealthiest Americans is spun as an assault on the working class. Minimum wage increases, environmental protections, and even paid sick days kill jobs, and anything that impacts huge multinationals’ bottom lines is spun as an issue of vital concern to small business owners.

The message is clear—the United States may be a hyper-individualistic country, but when it comes to our economic policies, somehow we’re all in it together. Bill Gates’s interests always dovetail neatly with those of Joe and Jane Six-Pack.

What We’ve Lost

All of that populist anger was a result of the growing economic insecurity most American families face today. And in order to understand how we got there, you need to step back a few decades, to a period of seismic economic changes that took place in the 1970s and the 1980s—changes that would profoundly transform the U.S. economy, rendering it almost unrecognizable from the one in which our grandparents raised their kids.

For three decades following World War II, a liberal consensus prevailed within America’s ruling class. Our workers ’ productivity exploded, and the rewards were broadly shared. Labor unions were part of the fabric of American life—membership for private-sector wage-earners (other than construction workers) peaked at 39.2 percent in 1955¹²—and the wealthiest Americans paid up to 92 percent of their incomes in taxes. That tax structure prevented the lopsided accumulation of wealth by a small handful of families that had marked the robber-baron era and contributed to the loose speculation that resulted in the Great Depression. Highways were built to transport products to market, U.S. factories produced much of the goods the world consumed, and electricity and telephone service were extended to the most backward corners of the United States.

It was a bold experiment in liberal democracy, and it created the first economy built around a large middle class. The result was a virtuous cycle in which Americans could afford the products they produced, and each generation was expected to fare a little bit better than the one that came before it. It was far from a perfect society—think institutionalized racism and sexism, kids learning to duck and cover to survive a Soviet H-bomb, and, in the latter years, America’s disastrous involvement in Vietnam and her ghettos in flames. But despite the social tensions of that era, the economy worked for a broad swath of the population. For (at least white) Americans, a public education and hard work at a factory job could lead to a decent middle-class life and the ability to send the kids to college so that they’d have a shot at the executive suite.

The Gilded Age had finally come to an end. In 1928, just before the Great Depression, the top 10 percent of the population controlled 49.3 percent of the nation’s income, leaving nine out of ten Americans to share the other half. By 1953, the bottom nine-tenths shared 67.7 percent of the economic pie. It was an economic sea change.¹³ But by 2006, the gains U.S. workers had made during the previous seventy years had been entirely reversed, with the top 10 percent of the population grabbing 49.7 percent of the income—slightly higher than at the peak of the robber-baron era.¹⁴

Between 1973 and 2006, the U.S. economy tripled in size.¹⁵ In 1973, the income of the bottom 90 percent averaged $32,135 dollars per year (adjusted to 2007 dollars). But despite that trebling of the economy, by 2006 the bottom 90 percent had taken a cut, pulling down an average income of $31,528.¹⁶ Even with thirty-three years of healthy growth in the economy, the vast majority of Americans earned a bit less than they had in 1973.

During that same period, the average incomes of those in the top 10 percent doubled, from $138,738 to $276,140. Folks in the top 1 percent saw their incomes rise by 221 percent, and a small number of prominent families occupying the top tenth of a percent of the economic pile saw their incomes increase by a whopping 441 percent.¹⁷

It’s important to understand how everything changed so dramatically.

Class War and the Great Risk Shift

Economist Doug Henwood offered a succinct description of the kind of seismic changes that occurred in that era. You have to start this history in the 1970s, with a period of great inflation, he explained. The U.S had lost the Vietnam War, there were wild-cat strikes, the third world was in broad rebellion. From the point of view of the American elite . . . it looked like things were spinning out of control. So there was this great rightward move in politics that culminated in the Reagan Revolution (and the advent of Thatcherism in the UK).¹⁸

The backlash, Henwood explained, was brutal, as the new conservative movement launched a very successful class-war from above—big crack-down on labor, union-busting, paring back the welfare state. And at the same time Wall Street was making its contribution to things. Shareholders, who had been kind of sleeping for the previous several decades, awoke and started demanding much higher profits, and much leaner and meaner ways of running corporate America. What followed was a fifteen-year bull market for stocks, based on a correct assumption that the class war had turned, that the elites were back in control, that the period of rebellion in the third world was over and corporate profits [would begin] rising.¹⁹

Union busting became popular in corporate America. Membership declined from almost 4 in 10 private-sector workers in the mid-1950s, to 7.2 percent—less than 1 in 12—in 2009.²⁰ At the same time, the rapid growth that had marked the early decades of the postwar era, fueled by huge gains in worker productivity in the manufacturing sector, was coming to an end.²¹

That’s an important piece of context. Since the middle of the last century, investors’ returns on real production in the advanced economies—manufacturing—have steadily declined. In the booming years after World War II, the United States did very well making goods for the entire planet. But as Europe and Japan rose from the ashes, and later, as production in countries such as Taiwan, South Korea, and, of course, China increased, the industrial world simply started to make more crap than there were consumers to purchase it.

Economist Robert Brenner described what followed as a long downturn in the world’s richest countries. The seven leading industrial economies had grown by a steady rate of 5 percent or more annually from the end of World War II through the 1960s, but in the 1970s that rate fell to 3.6 percent, and it’s averaged around 3 percent since 1980.²²

Investors started to seek higher returns elsewhere: in developing countries. The era of globalization was ushered in, and under the guise of free trade (itself a lie, as we’ll see in chapter 15), corporations in richer countries began to offshore manufacturing (and later, services) to locales with cheaper labor, weaker environmental standards, and less regulation.

The result: manufacturing, which represented almost 30 percent of the U.S. economy at its peak in 1953, fell sharply, to just 12 percent by 2005.²³ The good, solid jobs on which a hard-working American without a college education could support his or her family were becoming a thing of the past. But that was okay, we were assured by the politicians and the pundits, because we were building a new economy, an information economy that would more than make up for the loss. What really happened is that many of those solid jobs were replaced by service jobs that paid less, came with fewer benefits, and offered far less security.

During the 1980s, Ronald Reagan also began a relentless assault on the top marginal tax rates that continues to this day. The inevitable result was that huge fortunes were amassed by those at the top. In 1985, the combined net worth of the four hundred richest people (and families) in the United States was $238 billion, adjusted for inflation²⁴; by 2007, just before the Great Recession, it had grown sixfold, to $1.57 trillion.²⁵

Corporate profits started to climb. In 2006, the New York Times reported, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960s.²⁶And while the big corporations were becoming ever more profitable, the taxes they paid were plummeting—from one in four federal tax dollars in the 1950s to one in ten in the 2000s. Much of the shortfall was made up on the backs of working people, with Social Security taxes, excise taxes, and fees.²⁷

At the same time, the New Deal’s promise of a minimally dignified existence was being eroded, as corporate America and the government shrugged off much of the burden for providing workers with health care, educating their kids, and assuring them a decent retirement. It’s what political scientist Jacob Hacker termed The Great Risk Shift.

In 1989, the number of workers with 401(k) plans—subject to the ups and downs of the stock market—exceeded those with fixed-benefit pensions for the first time. Even megacorporations got into the act. In 1998, nine out of ten Fortune 100 companies still offered employees a pension; that number had been cut in half by 2008.²⁸ The share of workers with employer-provided health insurance fell by 14 percent between 1979 and 2006, while insurers got stingier with their benefits.²⁹ And after adjusting for inflation, the average cost of tuition, board, and books at a four-year public university doubled in the thirty years between 1975 and 2004.³⁰ Those tuition hikes were a necessary response to the long-term decline in states’ support for public colleges.

A One-Sided War

All of this occurred before the Great Recession that began in 2008. American families then lost approximately $13 trillion in wealth during the crash—in home values and stocks and bonds—stoking the kind of anger we’ve seen from pissed off progressives and from the Tea Partiers who dominated the news in the summer of 2009.

But although a lot of people threw around some angry rhetoric—and even invoked the specter of armed revolution—the reality is that when the economy nosedived, we basically took it. We didn’t riot; we took the bailouts, tolerated our stagnant wages, and accepted that Washington wasn’t about to give struggling families any real relief.

Yet the meltdown was global in nature, and it’s worth noting that citizens of other wealthy countries weren’t so complacent. As the Telegraph, a British tabloid, reported, A depression triggered in America is being played out in Europe with increasing violence, and other forms of social unrest are spreading. In Iceland, a government has fallen. Workers have marched in Zaragoza, as Spanish unemployment heads towards 20%. There have been riots and bloodshed in Greece, protests in Latvia, Lithuania, Hungary and Bulgaria. The police have suppressed public discontent in Russia.³¹ Another British paper, the Guardian, reported scenes of Burned-out cars, masked youths, smashed shop windows and more than a million striking workers in France. French officials went so far as to delay the release of unemployment data, apparently for fear of inflaming the protests.³²

You might wonder why Americans are so docile compared to others in the face of such a brutal economic onslaught by a small and entitled elite. Any number of theories have been offered to explain the apparent disconnect. Thomas Frank argued eloquently in his book What’s the Matter with Kansas? that wedge social issues—God, guns and gays—which the American Right nurtures with such care, obscure the fundamental differences between rich and poor, the powerful and the disenfranchised. Class consciousness, common to other liberal democracies, has been trumped by social anxieties, according to Frank.

I would offer two additional explanations. First, the 90 percent of Americans who haven’t seen a raise in thirty-five years compensated for their stagnant incomes and kept on consuming—continued to buy TVs and go out to dinner. How did they do it? They started by bringing women into the workforce in huge numbers, transforming the typical single-breadwinner family into a two-earner household. Between 1955 and 2002, the percentage of married women who had jobs outside the home almost doubled.³³ Workers’ salaries stayed pretty much the same, but the typical family now had two paychecks instead of one.

After that, we started to finance our lifestyles through debt—mounds of it. Consumer debt blossomed; trade deficits (which are ultimately financed by debt) exploded, and the government started to run big budget deficits, year in and year out. In the period after World War II, while wages were still rising along with the overall economy, Americans socked away 7 to 12 percent of the nation’s income in savings annually (the data only go back as far as 1959). But in the 1980s, that began to decline—the savings rate fell from around 10 percent in the 1960s and the 1970s to about 7 percent in the 1980s, and by 2005, it stood at less than 1 percent (it’s rebounded somewhat since the crash—to 3.3 percent at the beginning of 2010).³⁴

The second reason Americans seem complacent in the face of this tectonic shift in their economic fortunes is more controversial: the New Conservative Movement built a highly influential message machine that’s helped obscure not only the economic history of the last four decades, but the very notion of class itself.

The Lies That Corporate America Tells Us

Let’s return to the early 1970s, when a rattled economic elite became determined to regain control of the U.S. economy. How do you go about achieving that in a democracy?

One way, of course, is to depose the government and replace it with one that’s more to your liking. In the 1930s, a group of businessmen contemplated just that—a military takeover of Washington, D.C., to stop Franklin Delano Roosevelt’s dreaded New Deal from being enacted. The plot fell apart when the decorated general the group had tapped to lead the coup turned in the conspirators.³⁵

A more subtle approach is to convince a majority of voters that your interests are, in fact, their own. Yet there’s a big problem with this: if you belong to a rarified group, then the notion of aligned interests doesn’t reflect objective reality. And in the early 1970s, the media and academia provided a neutral arbiter of that reality (of sorts).

We’ve all grown accustomed to conservatives’ conspiracy theories about the corporate media having a far-left bias and college professors indoctrinating American youths into Maoism. In the early 1970s, a group of very wealthy conservatives started to invest in what you might call intellectual infrastructure ostensibly designed to counter the liberal bias they saw all around them. They funded dozens of corporate-backed think tanks, endowed academic chairs, and created their own dedicated and distinctly conservative media outlets.

Families with names such as Olin, Coors, Scaife, Bradley, and Koch may not be familiar to most Americans, but their efforts have had a profound impact on our economic discourse. Having amassed huge fortunes in business, these dynasties used their foundations to fund the movement that would culminate in the election of Ronald Reagan in 1980 and eventually bring about the coronation of George W. Bush in 2000.

In 1973, brewer Joseph Coors kicked in $250,000 for seed money to start the now highly influential Heritage Foundation (with the help of the Olin, Scaife, Bradley, and DeVos foundations). In 1977, Charles Koch, an oil billionaire, started the libertarian Cato Institute. Richard Mellon Scaife, a wealthy right-wing philanthropist who would later fund the shady Arkansas Project that almost brought down Bill Clinton’s presidency, bought the Pittsburgh Tribune-Review in 1970. The American Enterprise Institute, which was founded as the American Enterprise